Colleagues,
Further to my
update of Friday, we continue to liaise with Capita in respect of their ongoing
investigations into their cyber
incident and the ongoing support they will be providing to those
potentially affected by it.
We
use Capita’s technology platform (Hartlink) to support our in-house pension
administration processes. We understand the USS data concerned was contained in
files generated by them from the main Hartlink system, and held separately on
their servers, to facilitate operational processes.
We have
emailed more than 400,000 members to alert them to this event and are sending
letters to those members who have not shared their email addresses with us.
There was also widespread media coverage over the weekend, which supported
broad awareness of the issue.
As of this
morning, the information on our website had been viewed by more than 86,000
people but enquiries to our call centre and dedicated email address – [email protected] – were in the low to mid hundreds. This
suggests the information and advice we provided, within a day of being formally
notified by Capita, has been enough for members to work with in the short-term.
But the
data in question means the members impacted will need ongoing support. So, they
are going to be given access to a leading identity protection service, free of
charge, and we will be writing to them as soon as possible setting out how that
will work.
I want to
assure you that data privacy and security is a top priority for us. Having
reviewed our own systems and controls to ensure they remain robust, we are very
confident members’ pensions remain secure. But we know our members will be
concerned about their personal data. We very much regret that this has happened
and are committed to supporting them through this issue.
Alongside this
update on Capita, I can provide the following update in respect of the scheme’s
latest full valuation.
The 2023 valuation
As we move towards the key decision points for the 2023
valuation, the position looks very encouraging.
More than ten years of falling UK gilt yields has reversed
over the past year. Equity prices (and return expectations) have remained
robust. These developments have contributed to a notable improvement in the
implied funding position.
We have, today, published the latest quarterly monitoring report to the end of March 2023. This is, of
course, the effective date of the 2023 valuation and the usual caveats
about the difference between the monitoring basis and a full valuation still
very much apply.
However, the direction of travel is clear.
Overall market conditions and investment expectations at the
end of March were slightly more favourable than at the end of last year. This is
reflected in a higher potential surplus (£7.6bn) and a lower implied future service
contribution rate (17.5%) in respect of the current level of benefits. The
future service contribution requirement at the end of March for the pre-1 April
2022 benefit structure, on the monitoring basis, was 21.8%.
We are still in the process of collecting and considering
the comprehensive evidence and advice that will inform the Trustee’s robust
assessment of the position in respect of the 2023 valuation, ahead of the
consultation with Universities UK (on behalf of employers) on the proposed
Technical Provisions.
But I can reaffirm the guidance we’ve previously issued to the
Joint Negotiating Committee (JNC):
- The overall
contribution rate required for the current level of benefits is unlikely to be
in excess of 20% of payroll
- The overall
contribution rate that would be required for the pre-1 April 2022 benefit
structure, in the future, is very unlikely to be in excess of the current cost
of future service (25.2%).
The valuation timetable
We hope we can maintain the collaborative
spirit that has supported the tangible progress that is being made,
collectively, to deliver the valuation in line with the agreed milestones. The
timetable we have set ourselves is ambitious and not without its risks, but it
is achievable if we continue to work together positively towards implementing
any changes to benefits and/or contributions the JNC decides to make by 1 April
2024.
I provide, below, some more granular
detail on some of the key milestones in that timetable.
These milestones are contingent on the Trustee Board making
the necessary decisions in May and June in respect of the proposed funding assumptions
and valuation methodology that will form the basis of the Technical Provisions
consultation.
They are also dependent on stakeholders, in tandem, making
decisions in respect of any benefit changes and any further changes to
contributions they would wish to be illustrated alongside the Technical
Provisions consultation and continuing to make progress with the
decisions required to take forward an employer-led statutory consultation with
affected employees and their representatives on any potential changes.
In addition to taking part in a number of HE sector events
and discussions in the coming weeks, we plan to hold webinars for employers
during the Technical Provisions consultation and would also be happy to consider
attending one-to-one meetings over that period. We will, of course, continue to keep members up to speed
with developments as well.
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May to June 2023
The Trustee Board will agree the proposed methodology, assumptions
and covenant assessment to be used for the purposes of the Technical Provisions
consultation with UUK for the 2023 valuation.
Early June to early August
We anticipate official contacts will be invited (and
reminded) to register a Nominated Consultation Contact in anticipation of the
employer-led consultation with affected employees and their representatives on any
changes proposed by the JNC.
Mid-July to mid-September
We will consult UUK on the proposed Technical Provisions –
our view of the scheme’s funding position at the valuation date and the overall
contribution rate we need for the current package of benefits, as well as
illustrative requirements for any changes proposed by the JNC. UUK will, in
turn, consult sponsoring employers.
Late September to late November
This is broadly when we anticipate the employer-led
consultation will be held on any changes proposed by the JNC.
October
Having considered UUK’s response to the TP consultation, we
will inform the JNC of the overall contribution rate needed for the current
package of benefits and the rate required for any changes proposed by the JNC.
December
This is the latest a JNC decision would be needed in respect
of the benefits and/or contribution rates to be implemented for service from 1
April 2024.
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The Technical Provisions
consultation
In recent
weeks we have been discussing with UUK, as the formal consultee, the
anticipated approach to the Technical Provisions consultation and the
supporting information we expect to provide to support their consultation with
employers.
Between
November and May, we have also held a series of meetings with the Valuation
Technical Forum to discuss our approach to the proposed assumptions and
methodology for the 2023 valuation.
Building on
those discussions, in addition to the usual updates on our covenant assessment,
and proposed demographic and financial assumptions, we expect to provide explanations
of our risk metrics and decisions on prudent funding requirements in the
consultation.
A platform for stability
The scheme’s improved
funding position could be a platform on which to build greater resilience and
stability into the future. So, we are also developing modelling and new metrics
in relation to stability for future valuations to illustrate the impact the
investment strategy and other factors may have on the path of volatility.
This is important.
As Trustee, we must make balanced judgements and assumptions without perfect
foresight. Market conditions have clearly been volatile and could change again
just as rapidly. Only prudent planning can ensure members’ benefits are secure
whether economic conditions are fair or foul. Our goal in this valuation cycle
will be to work with our stakeholders to ensure USS is fit for the future and
can deliver the benefits promised without being overly dependent on future
economic conditions.
A stability
working group has been set up by the JNC to explore these issues. We are
facilitating those discussions and we look forward to reporting back on its progress.
We expect to share information on the initial modelling and metrics we are
considering - including a future look to the potential outcomes for the next valuation
and beyond – in the Technical Provisions Consultation.
One potential
long-term approach to bringing greater stability is set out in our briefing
note on Conditional
Indexation, circulated
recently by UUK in seeking the early thoughts of USS’s sponsoring employers.
The modelling
we’ve produced, at UUK’s request, on a theoretical model similar to that used
by the Ontario Teachers’ Pension Plan, suggests this is a promising structure
for the stakeholders to explore.
We look
forward to receiving UUK’s feedback.
Bill
Galvin, Group Chief
Executive
